GE Earnings Beat Expectations. Why Its Stock Is Dropping. - Barron's

General Electric reported an adjusted profit of 3 cents a share, topping Wall Street estimates... — General Electric reported an adjusted profit of 3 cents a share, topping Wall Street estimates for a 1 cent gain.
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General Electric ‘s first-quarter 2021 earnings were as they should be. Still, it wasn’t quite enough for investors.

General Electric (ticker: GE) shares were down about 2.7% in premarket trading. S&P 500 and Dow Jones Industrial Average futures, for comparison, were both off about 0.1%.

The company reported an adjusted profit of 3 cents a share, topping Wall Street estimates for a 1 cent gain, while burning through about $845 million in cash, also in line with analyst projections. The start of the year is typically the seasonally weakest part for cash generation because customers tend to pay their bills at the end of the year.

GE reiterated its financial guidance for 2021, which shouldn’t be a surprise given that it was given in early March, about six weeks ago. GE expects to generate about $2.5 billion to $4.5 billion from its industrial businesses and earn roughly 20 cents a share.

Orders dropped 8% year over year, but “GE isn’t a short-cycle business,” as CEO Larry Culp explained to Barron’s. GE sells a lot of large, expensive equipment that is ordered years before it gets delivered. Its business tends to recover more slowly than businesses selling small components that become parts of huge machines.

Sales fell year over year in the company’s aviation, power and healthcare businesses. The renewable power division eked out a 2% top-line gain. The quarter loss narrowed in that unit as well. Profits fell year over year in the Healthcare and Aviation units, but those two divisions remained solidly profitable.

“I am proud of the GE team’s solid first quarter results, despite a still difficult environment for Aviation,” said CEO Larry Culp in the company’s news release. “This continued progress sets us up well to deliver on our 2021 commitments.”

The lack of any big negative surprise is surely welcome. But the lack of a big positive surprise will likely have shares languishing Tuesday. The need to beat earnings estimates and raise guidance to keep the stock moving is actually a bit of good news for GE investors because it means investors are expecting more. In the recent past, just meeting estimates was enough. That’s another sign the turnaround efforts under way at the industrial conglomerate have yielded fruit.

The company hosts an earnings conference call at 8 a.m. eastern time to discuss results. Analysts and investors will want to hear about commercial aviation demand coming out of the pandemic as well as ongoing efforts to pay down debt and improve the balance sheet.

Write to allen.root@dowjones.com

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